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Supermarkets forcing suppliers out of business

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 2 minutes

New findings from a government watchdog claim that supermarkets such as Tesco and Morrisons are using ‘shocking tactics’ to extort money from their suppliers. A Westminster Forum conference looked into the ‘power of supermarkets’ and concluded that some supermarkets are charging suppliers for absurd complaints.

Groceries code adjudicator Christine Tacon reported at the forum hearing stories from suppliers who were pressured to spend £25,000 to attend a charity or risk having their products withdrawn from shelves, stores claiming goods never arrived and a supplier who was charged £45 after a supermarket customer complained at finding a teabag inside an egg.

The claims range from the shameful to the absurd but the reports relayed by Ms Tacon from suppliers to the forum are consistent with past reports. Reports that for the last two decades, Britain’s 10 biggest supermarkets have been accused of exploiting many of their suppliers usually in order to keep costs low.

The groceries supply code of practice was drew up by the government in 2009 and four years later they appointed the first groceries code adjudicator who would oversee all dealings taking place between suppliers and supermarkets.

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However, these recent findings point to the situation getting worse despite the efforts from the government to keep industry giants in check. Last year, the practices of these supermarkets, which have been described as ‘predatory’, helped to push more than 150 food producers out of business, research from accountancy firm Moore Stephens found.

That number is triple the number of those lost in 2011 which totalled at only 56, a big jump in only five years. As a result, an investigation will be launched into the millions of pounds being taken from suppliers.

It is thought that the way supermarkets do this is by using the ‘drop and drive’ method; this is where perishable food, such as vegetables and fruit, is sent to distributors but some of it never appears on the payment system so supermarkets will claim the products have not been received.

At the Westminster Forum conference, Ms Tacon said that a preliminary investigation into 20 supply firms found they has lost around £15m a year to this ‘drop and drive’ method. This suggests that across the entire sector’s 8-9000 firms, the amount lost will be significant.

Last year, the groceries code adjudicator requested an apology from Morrisons after an email, seen by the Guardian, revealed they had asked suppliers to fund investments the supermarket had made. The meeting between Morrisons and dozens of food suppliers saw the supermarket allegedly demanding lump sums of around £2m each to keep their products stocked.

Practices such as this, and charging suppliers up to £55 when a customer complains about one of their products, is something Ms Tacon and the Westminster Forum conference want to stamp out. As more and more suppliers start to struggle financially and even fall into insolvency, many groups feel that the current status quo needs to be tackled to help small and medium sized suppliers.

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